Enhancing Coffee Cooperatives’ Price Risk Management

From 21 February to 1 March, Oikocredit held two workshops in the Peruvian city of Jaén on price risk management (PRM) for coffee cooperatives in Peru and Colombia.

The PRM project is a three-year, multi-stakeholder project funded by the Inter-American Development Bank (IDB) and co-funded by Oikocredit, Catholic Relief Services (CRS), Fair Trade USA and Keurig Green Mountain. Oikocredit is the executor of the project, led by Hugo Villela, Oikocredit regional agribusiness specialist for Latin America.

The PRM programme implementation team

Addressing price volatility

There are many risks faced by coffee cooperatives, including quality and production, climate change, governance and performance; yet price risk continues to be one of the biggest threats to the success of a coffee cooperative and its smallholder farmers. The objective of the PRM project is to enable coffee cooperatives in Latin America to mitigate the volatility of coffee prices through financial strategies and tools.

The programme uses innovative methodology specifically designed to engage cooperative management and board members and effectively integrate PRM concepts and tools into their cooperatives’ policies.

Empowering the cooperatives’ board members

The first workshop in South America kicked off on 21 February, following the Central America workshop which took place in Honduras last October. The introductory-level workshop is targeted at the cooperatives’ board members to introduce a fundamental understanding of price risk management and empower them to support their management staff. At this first workshop, 30 participants represented eight cooperatives from Peru and two cooperatives from Colombia. Five of the cooperatives participating in the programme are located in the Jaén region of Peru, where the workshops were conducted.

Putting price risk management into practice

From 26 February to 1 March, a second (intermediate-level) workshop was conducted with 33 participants representing 11 cooperatives in Peru and Colombia. The second module develops a deeper understanding of inventory management strategies and focuses on developing transparency and clear communication between key staff – especially commercial, finance and general managers.

The intermediate workshop covered the complexities of harvest evaluation and prediction, coffee market fundamentals, inventory management, and culminated with an introduction to financial hedging strategies.

A key goal of the programme is for cooperatives to put clear policies in place to manage risk in these areas, including policies related to sales, price-fixing, purchasing and funding.

Participants working in groups during the PRM workshop

The workshop also included financial tools that cooperatives can use to track their monthly coffee purchases, price-fixing and sales. This key data enables participants to calculate their inventory exposure and position – knowledge that is crucial to managing price risk in the coffee market.

Frank Rubio, Oikocredit global head of agriculture, also attended the event. “The Oikocredit-led PRM programme is the first of its kind in addressing the critical institutional issues that our coffee cooperative partners face in implementing appropriate strategies to mitigate price risk,” he explained during the intermediate workshop.

The way forward

In the following months, Oikocredit will be advising and monitoring each cooperative to track the progress and utilisation of the tools and support the implementation of policies.

The intermediate workshop for Central America is scheduled to take place in July in Nicaragua, for coffee cooperatives from Honduras, Nicaragua, Guatemala and Costa Rica.

The next milestone in the PRM programme will be the design and implementation of the advanced training course. The centrepiece will be the practical application of strategies by the member cooperatives, using a simulator designed by Fair Trade USA in coordination with Cornell University.

While the first two workshops are rooted in the physical strategies for managing price risk, the advanced workshop will elaborate further on the financial hedging strategies for PRM. The advanced workshop for Central American cooperatives will be held in Central America in winter 2018.